A recession is on the horizon. Fundamental analysis for 01.12.2016
01.02.2016
The US economy may soon lose its position as a major driver of the global post-crisis recovery. According to recent studies from Financial Times, the probability of the return of a recession in the US this year is 20%. Parallel to this, the likelihood of further rate hikes by the Fed is decreasing, which could cause frankly weak US statistics, and global risks are growing due to the slowing economic growth in China.
Beijing already took stock of the past year, and reported on the growth of its economy by 6.9%. Of course, European countries and the USA can only dream of these indicators, but for China it is the minimum growth since 1990. And it seems that the course of the Chinese Communist Party is to turn the economy to domestic consumption is gaining momentum - in 2015 the volume of foreign trade decreased by 7%, while the share of services in GDP for the first time in the history of the country exceeded 50%.
Another factor for a possible adjustment of the Fed plans to raise the key rate will be the largely unexpected decision by the Bank of Japan to reduce its rate to negative levels. It should be noted that the actual actions of the regulator can be compared with the introduction of a negative deposit rate in the euro area, rather than going to a "negative" core rate. However, the willingness of the Japanese and European central banks to use further easing policies clearly calls into question all of last year’s plans of the Federal Reserve.
At the December press conference, during which the first rate increase in many years was announced, the Fed chief Janet Yellen had estimated the probability of arrival of a new recession at 10%. It would seem that the labour market is recovering, and the US economy shows good growth. However, in January, the stock market has "dipped" by showing the result one of the worst results in the beginning of the year, which, again, increases the risk of a deeper fall in the index, and this is where the Fed is faced with a major challenge.
Earlier, the Fed said that for 2016 we should await a rate increase by 1% in four FOMC sessions. But in fact, the US manufacturing sector is already in a recession, showing a negative trend. The positive dynamics of the labour market could be soon broken by a wave of terminations, which began in December by a number of American companies. How the Fed is going to go on tightening the policy in these conditions - one can only guess.
In the short term a further movement of the main currency pairs in the direction of the strengthening of the dollar is possible. In the Eurodollar this movement gets an additional driver in the form of weak statistics for the euro area. Last Friday we saw weak data on inflation and on Monday we saw "modest" data on industrial PMI. At 16:00 GMT Mario Draghi is scheduled to speak before the European Parliament with a report on 2015. If the ECB chief convincingly talks about the possibility of the continuation of the regulator's soft policy, the Eurodollar can get support for a further decline.
RoboForex Analytical Department
Beijing already took stock of the past year, and reported on the growth of its economy by 6.9%. Of course, European countries and the USA can only dream of these indicators, but for China it is the minimum growth since 1990. And it seems that the course of the Chinese Communist Party is to turn the economy to domestic consumption is gaining momentum - in 2015 the volume of foreign trade decreased by 7%, while the share of services in GDP for the first time in the history of the country exceeded 50%.
Another factor for a possible adjustment of the Fed plans to raise the key rate will be the largely unexpected decision by the Bank of Japan to reduce its rate to negative levels. It should be noted that the actual actions of the regulator can be compared with the introduction of a negative deposit rate in the euro area, rather than going to a "negative" core rate. However, the willingness of the Japanese and European central banks to use further easing policies clearly calls into question all of last year’s plans of the Federal Reserve.
At the December press conference, during which the first rate increase in many years was announced, the Fed chief Janet Yellen had estimated the probability of arrival of a new recession at 10%. It would seem that the labour market is recovering, and the US economy shows good growth. However, in January, the stock market has "dipped" by showing the result one of the worst results in the beginning of the year, which, again, increases the risk of a deeper fall in the index, and this is where the Fed is faced with a major challenge.
Earlier, the Fed said that for 2016 we should await a rate increase by 1% in four FOMC sessions. But in fact, the US manufacturing sector is already in a recession, showing a negative trend. The positive dynamics of the labour market could be soon broken by a wave of terminations, which began in December by a number of American companies. How the Fed is going to go on tightening the policy in these conditions - one can only guess.
In the short term a further movement of the main currency pairs in the direction of the strengthening of the dollar is possible. In the Eurodollar this movement gets an additional driver in the form of weak statistics for the euro area. Last Friday we saw weak data on inflation and on Monday we saw "modest" data on industrial PMI. At 16:00 GMT Mario Draghi is scheduled to speak before the European Parliament with a report on 2015. If the ECB chief convincingly talks about the possibility of the continuation of the regulator's soft policy, the Eurodollar can get support for a further decline.
RoboForex Analytical Department
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Forecasts presented in this section only reflect the author’s private opinion and should not be considered as guidance for trading. RoboForex bears no responsibility for trading results based on trading recommendations described in these analytical reviews.